Saudi Arabia Under Fire From All Sides

Saudi Arabia bet that it could defy the U.S. when it pushed for oil production cuts at the OPEC+ meeting, gambling that President Trump would not lash out in retaliation despite some heavy-handed pressure from his twitter feed ahead of the summit in Vienna. This week, the bet seems to have paid off.

To be sure, Saudi Arabia’s decision to push for oil production cuts was a bit of a no brainer. The extreme budgetary pressure facing Riyadh from low oil prices is vastly more concerning than any legal or political action from the U.S. Congress or White House. And absent a deal in Vienna, oil prices could have fallen further.

“Saudi Arabia today had a 'Saudi first' policy,” Helima Croft, global head of commodity strategy at RBC Capital Markets, said shortly after OPEC+ announced its production cuts last Friday. She told CNBC that such a move risked angering the American president. “I think everybody in OPEC is waiting to see what President Trump does next. Is he going to be quiet after this agreement, or is he going to take to social media and criticize OPEC?” Croft said.

Riyadh certainly weighed American interests more than at any other OPEC meeting in recent memory. The murder of Saudi journalist Jamal Khashoggi has burned a lot of bridges in Washington, and the White House is one of the few places left where Saudi Arabia can find friends.

However, it appears that the oil production cuts did not anger President Trump enough for him to take action against crown prince Mohammed bin Salman. On Tuesday he rode to the crown prince’s defense. “He’s the leader of Saudi Arabia. They’ve been a very good ally,” Trump said in an interview with Reuters. He said once again that MbS “vehemently denies” having ordered the assassination of Khashoggi, despite the conclusion from the CIA to the contrary.

Late last month, the U.S. Senate voted to cut off American support for Saudi Arabia’s war in Yemen. The bipartisan consensus condemning the murder of Khashoggi, and the role that MbS played in it, has only grown since then. “You have to be willfully blind not to come to the conclusion that this was orchestrated and organized by people under the command of MbS,” Republican Senator Lindsey Graham said last week.

Now, the U.S. Senate is considering another measure, a resolution condemning the crown prince for the murder. The resolution would have no practical effect, but it would force Trump to either sign it or veto it.

Trump’s support for MbS, while steadfast, may not be bottomless in the face of mounting pressure. “Well, I’m much more open to Yemen because frankly, I hate to see what’s going on in Yemen,” Trump said, according to Reuters. “But it takes two to tango. I’d want to see Iran pull out of Yemen too. Because - and I think they will.”

Trump may still run interference on another major piece of legislation that has gathered momentum in Congress. The No Oil Producing and Exporting Cartels, or NOPEC Act, would allow the U.S. government to sue OPEC members for antitrust violations. The legislation has been floating around Washington for years but has often failed to garner enough support. Past presidents, from both parties, have also opposed the various versions of a “NOPEC” bill over fear of damaging their relationship with the Saudi monarchy.

However, the Khashoggi murder has sparked a lot of momentum for the NOPEC bill and Congress may even try to take it up before the end of the year. “There's some push to look at NOPEC, but there's nothing certain yet,” a U.S. House aide involved in talks told S&P Global Platts on December 7. One factor working in favor of the bill’s proponents is that the legislation, at this point, is not divided along partisan lines.

This is where Trump could be pivotal. He has lashed out at OPEC on twitter several times this year, blaming them for high oil prices. He’s obviously no fan of the cartel. Yet, he has gone out of his way to defend MbS over the Khashoggi murder. It’s unclear how he would react if Congress succeeded in moving the NOPEC legislation.

The one thing the Saudis have going for them is the fact that the production cuts from OPEC+ have so far failed to significantly boost oil prices. As a result, Trump might not be all that angry.

Meanwhile, the Saudi economy continues to bleed cash from low oil prices. The FT reports that many of MbS’ highly-hyped economic transformation initiatives are floundering, and international investors are staying away.

Everything seems to be going wrong for MbS right now. He is facing international scrutiny, oil prices have not rallied even as Saudi Arabia prepares to curtail production, and Washington may move on damaging legislation anyway.